In recent years, it has become increasingly common for consumers to pay for goods and services they purchase with data cards such as credit cards instead of with cash or checks. Two elements must be present before a credit card transaction can occur successfully. First, the consumer must possess a valid credit card issued by a bank or other credit card issuing institution. Second, the merchant must be able to accept the card as payment for the goods or services and to receive payment from the issuing institution, which in turn receives payment from the consumer.
Credit cards are usually issued by banks and other financial institutions. When a card is issued, the issuer is, in effect, granting a line of credit to the cardholder. Because the issuer is granting a line of credit, a card will be issued only after the issuer has conducted a credit background check and is satisfied as to the consumer's ability and willingness to repay the debts incurred. The issuer's confidence is reflected in the amount of credit granted, which may range from a few hundred dollars to tens of thousands of dollars.
Although credit cards provide significant convenience for both cardholders and merchants, there are also well-known risks associated with credit card transactions. The principal risk is fraudulent or unauthorized use of the credit card. In such a case, the goods or services are taken by a cardholder and are usually unrecoverable. The loss must then be absorbed by the merchant and/or the credit card issuer.
Over the years, card issuers and merchants have relied on several different methods to verify the validity of a credit card, and to protect themselves from fraudulent and unauthorized credit card use. Initially, card issuers provided "warning bulletins" to merchants. Warning bulletins, which are still in widespread use, are booklets that list the account numbers of credit cards that should no longer be accepted. Account numbers are included on these lists if the card had been reported stolen, or if the cardholder has exceeded the credit limit or failed to pay the bill.
Subsequently, the issuers provided telephone numbers that merchants could call in order to receive telephonic authorization for a proposed transaction. Card issuers, or in some cases independent credit card transaction processors, maintain computer databases containing information concerning valid or invalid credit card account numbers, as well as credit limits, and provide telephonic authorization numbers or codes for transactions that were authorized. Telephonic authorization provided an improvement over the use of warning bulletins because the database against which the account number and purchase amount were verified could be updated more frequently than new warning bulletins could be mailed out.
As computer and modem technology became more advanced, the industry developed electronic: authorization terminals that drastically reduced the time required to receive "electronic" authorization. With early electronic authorization terminals, a merchant had to enter the credit card number after establishing a connection with a card issuer's host computer. Many terminals in use today are "card swipe" terminals. In such card swipe terminals, a merchant swipes the credit card through a slot, and the terminal automatically reads and decodes the credit card number and expiration date from a magnetic stripe on the credit card. The terminal then prompts the merchant to enter the amount of the transaction. The terminal places a call to a credit card database host computer and transmits the information relating to the proposed transaction. The host computer compares this data with the credit card database and determines whether the proposed transaction should be authorized. If so, an authorization number is transmitted back to the terminal and displayed to the merchant, who records it on the sales draft.
As automated transaction processing methods have become more widely available, credit card issuers have developed a variety of incentives to encourage use of their particular card among merchants. For the most part, these incentives have been directed to decreasing the risk and expense associated with credit card transactions. For example, an issuer and/or credit card transaction processor may charge a lower fee to merchants who utilize electronic authorization.
Although authorization terminals decrease the risk and expense associated with each credit card transaction, some merchants perceive that use of electronic terminals increases the overall cost and complexity of the equipment they must use. This is especially relevant to merchants that process a medium to low volume of credit card transactions. In order to make the use of authorization terminals attractive to these merchants, it is essential that they be inexpensive and easy to operate.
In light of the benefits available to merchants who use credit card authorization terminals, it is believed that more merchants would use them if the cost were low enough and the terminals were easy to use. However, many merchants have already made a deliberate decision regarding which, if any, credit cards they will accept, and which company will do their credit card processing. Once a decision is made, the merchant may be reluctant to incur the additional expense and administrative requirements that would accompany a decision to accept other types of credit cards, or to change credit card processing companies. This reluctance makes it difficult for companies offering competing credit cards or processing services to expand and develop their markets.
As a result of intense competition, credit card issuers and transaction processors are constantly looking for new ways to expand and develop their customer base. One possible way to do this is to make it easier and/or less expensive for a merchant to accept their card or use their processing service. One method by which this may be accomplished is to provide a card transaction terminal that facilitates the acceptance of their credit card or access to their processing service at a lower cost than their competitors. Thus, a credit card issuer or transaction processor could provide an extremely low cost authorization terminal to a merchant at little or no cost in order to induce the merchant to accept their credit card or use their processing services.
The availability of a sufficiently low-cost and easy to use card transaction terminal would provide significant marketing advantages for credit card issuers trying to expand the market for their particular credit cards and/or credit card processing services to merchants.
The cost of credit card authorization terminals is determined by several major factors. One is the requirement of a certain minimum level of functionality, necessitating the inclusion of components such as a microprocessor, magnetic stripe reading assembly, communication means such as a modem, a keypad, and an information display. The cost of the parts themselves varies according to the number and type of component parts selected to implement the design. In addition, a large number of parts, or a complex design tends to increase the cost of manufacture and assembly, while fewer parts and a simpler design tend to reduce such costs.
One attempt to provide a low cost credit card authorization terminal is found in U.S. Pat. No. 4,788,420 to Chang et al. However, this terminal fails to meet the above-described need for a low cost terminal for several reasons. The terminal employs many components that unnecessarily increase its complexity and cost. The use of two interconnected printed circuit boards requires costly cabling and connectors in addition to the cost of fabricating two printed circuit boards. The terminal also employs a data read head assembly that is attached to a metal bracket and mounted to a top housing by two screws, requiring additional handling of several small parts. The Chang et al. terminal also relies on a battery to preserve information in a non-volatile memory, and employs a two-step data decode algorithm that requires extra random access memory in order to store and decode the data from the magnetic stripe. Both the cost of the parts themselves and the cost of assembling the terminal increase with each additional part that is used.
Certain aspects of other prior art authorization terminals also contribute to the complexity of operation. Before an authorization terminal may be used to process a credit card transaction, it must be properly configured or "initialized". The initialization process typically requires the merchant to enter a merchant identification number, merchant telephone number, and the telephone number of the host computer. The terminal then dials the host, provides the identifying information to the host, and downloads other information, such as the types of credit cards the terminal will recognize and secondary host telephone numbers. In order to accomplish these tasks, the merchant must spend time reading instructions or manuals related to the terminal.
In addition, the merchant must often determine how to use a transaction authorization terminal in conjunction with his existing telephone equipment, such as a merchant's private branch exchange (PBX). Some PBX equipment requires special codes or digits to be entered before dialing any telephone number (for example, a "9" must be dialed before other digits of the telephone number). Special configuration routines must be provided in the terminal's operation so that the special codes or digits can be made a part of the host telephone number. Provision of such additional steps adds to the complexity of use and discourages merchants from accepting new credit cards or authorization equipment.
Despite prior art attempts to provide an extremely low cost, full featured authorization terminal, the cost is still high enough that many low volume merchants prefer to manually place a call to a credit card transaction processor in order to receive authorization for credit card transactions. Therefore, there is still a significant need for an easy to use, extremely low cost credit card authorization terminal that provides all the necessary functionality.